Customs Amendment Bill (No. 1) 2003

Bills Digest No. 159 2002-03

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

The purpose of the Bill is to amend the
Customs Act 1901 to allow preferential duty treatment
(i.e. duty free) for the importation of goods that are the produce
or manufacture of LDCs and East Timor, and by Singapore under trade
liberalisation initiatives.

Background

On 25 October 2002, the Prime Minister, the
Hon. John Howard MP, announced at the APEC Leaders CEO Summit in
Los Cabos that Australia will grant tariff and quota free access
for 50 of the world's poorest countries.(2) These are
referred to as Least Developed Countries (LDCs) and they include
countries such as Bangladesh, Cambodia and many parts of
sub-Saharan Africa.

East Timor is yet to be formally classified as
a LDC but Australia has included it in the Bill. East Timor
separated from Indonesia on 26 October 1999 and after a period of
civil unrest, which was brought under control by United Nations
peacekeepers, became an independent nation on 20 May 2002. Until
East Timor is able to rebuild its infrastructure and obtain revenue
from oil and gas resources in the Timor Sea it will remain one of
the poorest countries in the world in economic terms.

The initiative confirms Australia's commitment
to the integration of these countries into world economy by
facilitating market access. Australia announced publicly that it
would implement the initiative for LDCs and East Timor by 1 July
2003.(3)

The Singapore Australia Free Trade Agreement
(SAFTA) is a bilateral agreement that provides Singapore and
Australia with more liberal access to each other's goods, services
and investment markets.

SAFTA was signed on 17 February 2003 and
tabled in Parliament on 4 March 2003. SAFTA is expected to come
into force in the financial year 2003-04, subject to Australia's
treaty process and the exchange of diplomatic letters.

The Joint Standing Committee on Treaties
examined witnesses from the Department of Foreign Affairs and Trade
and the Attorney-General's Department at a meeting of the Committee
in Canberra on 24 March 2003. The evidence taken includes the view
that the treaty will significantly improve the competitive position
for Australian service providers and provide greater protection to
Australian investors operating in Singapore.(4)

The Government of Singapore has publicly
welcomed the treaty and has noted that:

SAFTA enhances business opportunities in both
countries and stimulates greater two-way
investment.(5)

The Government of Singapore stated that
bilateral trade between Australia and Singapore totalled about S$
9.9 billion (A$8.6 billion) in 2002 and is expected to grow in the
coming years.(6)

Features of SAFTA(7) include:

elimination of tariffs on all imports (e.g. duty free entry for
Australian beer and stout into Singapore);

no export subsidies or safeguard measures against each other's
goods;

for most goods, a 50% value added rule of origin to satisfy
country of origin (e.g. Singapore has Indonesian and Malaysian
inputs in some of its products) and a 30% rule for a limited number
of goods such as certain electrical and electronic items;

closer cooperation in Customs procedures and enhanced liaison
with each country's trading community;

non-discriminatory national treatment in tendering for government
business;

exemption for procurement policies in relation to industry
development, including measures to assist small and medium
enterprises and the promotion of employment and training
opportunities for indigenous people;

Singapore's environmental services sector will be open to
Australian businesses (with some restrictions in the areas of waste
management and hazardous waste);

removal of certain quantitative and market access restrictions
on service suppliers; these measures will improve access (and the
easing of some residency requirements) for Australian financial,
legal, other professional, investment services and
telecommunications;

the recognition of more Australian tertiary education courses
(such as law) as available to Singaporean students attending those
courses in Australian institutions; and

a commitment by both governments to address anti-competitive
business practices.

The cost of removing tariffs on imports from
LDCs and East Timor is expected to be a maximum of $2.5 million per
annum. The estimated reduced revenue collection arising from SAFTA
is expected to be $30 million for each of the first two years and
rising marginally after that.(8) The offset to revenue
loss is progress in international trade liberalisation and economic
support for LDCs.

A failure to pass this Bill would impact on the
preferential access to Australia by LDCs scheduled to commence on 1
July 2003. Australia's commitment to assist LDCs is consistent with
the Doha Ministerial Declaration in November 2001 that stated that
World Trade Organisation members should work towards duty-free
access for LDCs.

World Trade Organisation members, such as
Australia, have made a commitment to work towards duty-free access
by Least Developed Countries (LDCs) of goods that are the produce
or manufacture of LDCs.

Item 3 amends section 153D of
the Customs Act 1901 to provide a special rule that allows
a LDC to include materials that are inputs (e.g. raw materials or
components) imported from a 'Developing Country' and received at a
factory in an LDC in that LDC's manufactured goods. The amendment
recognises that, generally, allowable costs of these inputs will be
25% of the total factory cost of the goods claimed to be
manufactured in the LDC. This special rule will apply even where
the 25% cost of inputs from a developing country is exceeded.

Item 4 limits the application
of the existing 'Inland freight rule' in subsection 153D(3) of the
Customs Act 1901 to Papua New Guinea or a Forum Island
Country. This rule recognises as 'allowable expenditure'
the cost of inland freight within Papua New Guinea or a Forum
Island Country where that freight relates to movement of materials
from a port or airport to a factory or plant where the materials
are used in the manufacture of goods.

Item 5 inserts a New
section 153NA into the Customs Act 1901. The
proposed new section 153NA contains the rules of origin for goods
manufactured in an LDC. To satisfy the rule, the goods must have
the last process of their manufacture in the LDC and the allowable
factory cost must be at least 50%. The 'allowable factory costs'
means the sum of allowable expenditure of the factory on:

SAFTA is a free trade agreement that provides
Singapore and Australia with more liberal access to each other's
goods, services and investment markets.

Item 2 inserts a New
Division 4A into Part VI of the Customs Act 1901.
Part VI deals with the exportation of goods from Australia. The new
Division 4A will regulate the exportation of goods from Australia
to Singapore to ensure that the goods that are exported comply with
SAFTA. Compliance will enable the exporter to obtain preferential
treatment under SAFTA.

A proposed newsection 126AA provides a power to make regulations
that set out declaration requirements and procedures that exporters
must satisfy concerning the goods which are claimed to be the
produce or manufacture of Australia and which are exported to
Singapore under SAFTA.

Newsection
126AB provides a power to make regulations that impose
obligations for Australian producers, manufacturers and exporters
to maintain records that relate to goods exported to Singapore
under SAFTA. Newsection 126AC
will empower an authorised officer to inspect the records and to
also disclose details to the relevant authority in Singapore to
verify claims made about the goods. Newsection 126AD empowers an authorised officer to
ask questions of an exporter, producer or manufacturer concerning
goods falling within SAFTA and to disclose such answers to the
relevant authority in Singapore. There are already provisions in
the Customs Act 1901 that create an offence for failing to
answer a relevant question (section 243SA) or to produce a relevant
record (section 243SB).

Item 3 inserts a new Division
1B into Part VIII of the Customs Act 1901. This new
Division contains the rules of origin requirements applicable under
SAFTA for goods claimed to be the produce or manufacture of
Singapore. Proposed Newsection
153U expressly states the purpose for the proposed new
Division 1B.

For goods to satisfy a claim under the SAFTA
preference that they are the produce or manufacture of Singapore,
those goods must be accompanied by a 'Certificate of Origin' see
proposed new section 153VE. The relevant authority
that issues the Certificate of Origin in each country is set-out in
Annexe 2A of SAFTA. In the case of Singapore, the issuers of a
Certificate of Origin are International Enterprise Singapore and
any other body authorised by the Government of Singapore (subject
to the agreement of Australia).

The reference to 'CEO' (starting with the
Newsection 152UC) is to the
Chief Executive Officer of Customs.

Broadly stated, goods imported from Singapore
into Australia will satisfy the SAFTA preference if they are wholly
produced or manufactured in Singapore. Goods 'partly manufactured'
in Singapore may still qualify under SAFTA if the local content is
not less than 50% of the total cost to manufacture the goods (i.e.
see proposed New section 153VB). For a limited
range of electrical and electronic goods, a 30% rule will
apply.(9)

Newsection
153VC enables both the 50% and 30% rule to be reduced by
2%, respectively, where the Chief Executive Officer of Customs is
satisfied and determines in writing that the goods would have
satisfied the rule had not unforeseen circumstances occurred and
that the unforseen circumstances are unlikely to continue.

Newsection
153VD empowers the Chief Executive Officer of Customs to
determine, by notice in the Gazette that the 50% and 30%
rules may be varied for a period of time where the Chief Executive
Officer of Customs is satisfied that exceptional circumstances
apply.

Newsection
153VF applies exclusions from SAFTA preference goods that
are, in reality, simply consigned through Singapore and are not the
produce or manufacturer of Singapore.

Newsections 153W to
153WC provide the components and rules that are used to
calculate the allowable cost/expenditure on materials, labour and
overheads for goods partly manufactured in Singapore for which duty
free entry into Australia is claimed under SAFTA.

The reduction in revenue from allowing
duty free importation of goods from LDCs,East
TimorandSingaporeis noted
but the trade-off is the improvement in international relations
betweenAustraliaand these countries. In
a time of international tension and uncertainty measures such as
these are commendable. In the case of SAFTA, the benefits of trade
liberalisation will assist Australian businesses to operate more
easily in theSingaporemarket.

As a courtesy, it is noted that the nation of
East Timor prefers the name Timor L'Este (also expressed as
Timor-Leste). See the comments of Mr K. W. Wilkie MP, Second
Reading debate in the House of Representatives, Debates, 5
March 2003, p. 12299

See the statement of the Government of
Singapore, 'Mr George Yeo, Minister for Trade and Industry,
Singapore, at the Signing Ceremony of the Singapore-Australia Free
Trade Agreement on 17 February 2003' on www.mti.gov.sg.

The identification of 'electrical and
electronic goods' is drawn from the Minister's Second Reading
Speech delivered on 15 May 2003. The actual list of goods is
specified in Annex 2D of SAFTA but the list comprises a table of 8
digit tariff classification.

Brendan Bailey
27 May 2003
Bills Digest Service
Information and Research Services

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